Capital expenditure

Regulated Asset Base (RAB)

Heathrow is subject to RAB based regulation. The RAB is intended to represent the economic value of the business.

The RAB is calculated each year by taking the opening RAB, adding capital expenditure, and deducting regulatory forecast depreciation and any proceeds from asset disposals. It is then uplifted by inflation to give the closing RAB.

CAA Q6 Decision Forecast RAB

£million 2011/12 prices

CAA Decision

Regulatory Asset Base

9 mo. 2014

2015

2016

2017

2018

Opening RAB

13,816

13,788

13,812

13,805

13,661

Capital Expenditure

439

669

646

529

534

Depreciation

(467)

(645)

(653)

(672)

(676)

Closing RAB

13,788

13,812

13,805

13,661

13,519

Average RAB

13,802

13,800

13,808

13,733

13,590

Before capital expenditure is added to the RAB, it must meet two sets of criteria based on the capital expenditure’s value for money as well as going through a process of effective consultation with the airlines.

In Q6, a more flexible approach to capital planning has been adopted, recognising that additional flexibility is required in order to respond to the dynamic nature of the airport industry. A two tier approach has been applied, where capital investment is classified as either, core or development, to reflect the maturity of projects. A development capital expenditure cashflow incentive is applied to ensure that Heathrow only recovers a return on development capital expenditure that is actually used.